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![handle is hein.taxfoundation/iretcgadv0113 and id is 1 raw text is: June 28, 2001 No. 116
Treasury's Qualified Intermediary
Regulations And The OECD Tax Haven
Initiative: Threats To International
Capital Mobility And Investment
The United States Treasury is taking or
considering action on two fronts in the international
arena to shore up enforcement of the current
Such an income tax system has two main
drawbacks. First, the broad-based feature of the
tax means that it generally taxes income used for
ordinary saving and investment in the year it is
earned, and also taxes the subsequent returns on the
saving and investment. (Saving done in an IRA or
tax-deferred pension arrangements escapes this
double taxation.) By contrast, income used for
consumption is also taxed when earned, but the
subsequent purchase and use of the consumption
item is generally not taxed again under the federal
income tax. (A few goods face federal excise
taxes.) This arrangement generally places a higher
tax on income used for ordinary saving and
investment than on income used for consumption.
The resulting tax bias against saving and investment
holds capital formation, productivity, wages, and
employment below levels that would be possible
under an unbiased tax regime.
Second, the income tax is imposed on the
In the process, it
individual income tax system.
needs to be careful not to harm
the U.S. economy by driving
away badly needed investment
money. Some of the proposals
under review could have the
unfortunate side effect of
interfering with prospects for
fundamental tax reform and
may encourage greater growth
of government here and
abroad.
The current tax system.
The U.S. employs a so-
called broad-based individual
income tax which favors consumption over saving.
In addition, it attempts to impose that tax on a
global rather than a territorial basis. Many other
developed nations employ the same type of tax
system, at least vis-a-vis the United States.
global earnings of
U.S. residents, not just on the
income they earn in the United
States, with much of the tax on
foreign income offset by a
complex foreign tax credit to
avoid double taxation. The
global definition of taxable
income requires the U.S.
Treasury to gather information
on economic activity outside
the jurisdiction of the United
States to enforce U.S. tax law.
Both features of the tax code
result in enormous complexity
for the taxpayer and
enforcement problems for the
Treasury.
U.S. treatment of foreign investors.
Foreign savers owning U.S. financial assets
receive different tax treatment from U.S. residents.
Institute for
Research on the
Economics of
Taxation
The U.S. employs a so-called
br-oad-based individual income
tax which faors consumption
over saing. In addition, it
attempts to impose that tax on a
global ather than a teri-torial
basis... [which] requires the U.S.
Treasuy to gather information on
economic actity outside the
jurisdiction of the United States to
enforce U.S. tax law.
IRET is a non-profit, tax exempt 501(c)(3) economic policy research and educational organization devoted to inorming the
public about policies that will promote economic growth and efficient operation of the free market economy.
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